Earnings Call: Q1 2021

Apr 27, 2021

Thank you for standing by and welcome to the Crocs Incorporated First Quarter 2021 Earnings Call. Call. Please be advised that today's conference is being recorded. Call. I would now like to hand the conference over to your speaker today, Ms. Corinne Lin. Thank you. Please go ahead. Good morning, everyone, and thank you for joining us today for the Crocs' Q1 2021 earnings call. Earlier this morning, we announced our latest Quarterly results and a copy of the press release may be found on our website at crocs.com. We would like to remind you that some of the information provided on this call is forward looking and accordingly is subject to the and Safe Harbor provisions of the federal securities laws. These statements include, but are not limited to, statements regarding potential impacts to our business related to the COVID-nineteen pandemic. Crocs is not obligated to update these forward looking statements to reflect the impact of future events. We caution you that all forward looking statements are subject to risks and Call. Please refer to Crocs' Annual Report on Form 10 ks. Accordingly, actual results could differ materially from those described on this call. Please refer to Crocs' annual report on Form 10 ks as well as other documents filed with the SEC for more information relating to these risk factors. Adjusted gross margin, income from operations, operating margin and earnings per diluted common share are non GAAP measures. A reconciliation of these amounts Call. The company's financial results are not included in the press release we issued earlier this morning. Joining us on the call today are Andrew Reese, Chief Executive Officer and Ann Mehlman, Executive Vice President and Chief Financial Officer. Following the prepared remarks, we will open the call for your questions. At this time, I'll turn the call over to Andrew. Thank you, Kari, and good morning, everyone. We are thrilled with our Q1 results. The strength of the Crocs brand is exceptional, experiencing growth across all regions and all channels. In Q1, our global brand momentum continued to strengthen And we benefited from economies starting to emerge from the pandemic and government stimulus in select important markets. I'm proud of our performance and I'm incredibly confident in our ability to deliver sustained highly profitable growth. Highlights from the Q1 of 2021 include: for the 3rd consecutive quarter, we achieved record revenues with 1st quarter revenues $460,000,000 up 64% versus prior year. Our Americas business had another tremendous quarter with revenues increasing 87% and DTC revenues growing 131%. Our EMEA business has increasing momentum with 49% revenue growth And Asia showed strong double digit growth of 26% in the quarter. Digital grew 75% to represent 32% of total revenues. Adjusted operating income was $126,000,000 increasing by approximately 100,000,000 and adjusted operating margins expanded to 27%. Adjusted diluted earnings per share grew from $0.22 to a quarterly record of $1.49 On top of these outstanding financial results, the Crocs brand ranked the highest it has ever been in Piper Sandler Spring Taking Stock with Teen survey. The strength of our brand remains unabated. We continue to drive brand relevance and consideration through a multifaceted marketing approach that leverages digital and social marketing, call, celebrity and influencer campaigns and collaborations. We kicked off 2021 with an award winning collaboration with French EDM artist, Vladimir Kushma, that featured his signature skull mask. To celebrate call. On St. Patrick's Day, we posted a rainbow of Crocs and a pot of gibbets across social media and released Lucky Charms gibbets that could quickly sold out. In March, we launched a second global collaboration with Justin Bieber and his Drew House brand that confirm Crocs with socks are indeed better together. Plan. And to continue accelerating the Crocs brand in China, Justin Bieber sent fans on a mission to locate arcade games in 9 cities, giving them a chance to win free Crocs, Drew House plush toys and socks. We are incredibly proud that the Crocs brand and business has a positive impact on our communities. Most recently, we were pleased to partner with the United Nations Foundation as it launched its 2021 EqualEverywhere campaign to promote gender equality around the world. From a free pay for healthcare program that allowed us to provide comfort to those on the front lines to partnerships with Feeding America, Call. The NAACP, UNICEF and GLAAD that let the world know we're all in this together. We have accelerated our mission Call of everyone comfortable in their own shoes by remaining focused on doing the right thing. In addition for doing the right thing for our communities, We strive to do the right thing for our employees. We recently raised entry level wages to an average of $15 per hour for our frontline employees in our U. S. Distribution center and U. S. Retail stores in recognition of their contribution to the success of the Crocs brand. We were honored last week to be named to Forbes Best Employers for Diversity for 2021. We were also recently named Tufts Companies Annual List of the World's Most Innovative Companies for 2021. Recognize Organizations that not only found a way to be resilient in 2020, but also turn those challenges into impactful initiatives. Our ability to make a difference also resonates with our consumers, including teens who are socially and environmentally conscious. I'm confident that the strength of the Crocs brand and our mission of everyone comfortable in their own shoes will continue to drive accelerated growth this year and beyond. Call. Now let's turn to Q1 operating highlights. From a product perspective, we experienced strong growth in our key product pillars clogs, Sandals and Jibbitz. Sales of clogs were exceptional this quarter, increasing 87% year over year, representing 76% of total footwear revenues versus 65% last year. We continue to experience success with seasonal offerings and trend write drops such as Out of This World and Marble Prints. At the same time, sandal revenues increased 17% to represent 17% of footwear sales versus 24% last year. We are very encouraged by our initial results of our sandals that feature personalization, call, including our Classic Fly and the newly introduced Classic 2 Strap Sandal. While we expect clog growth to outpace sandals this year, Over the longer term, sandals will grow faster than clogs. Jibbit sales continue to be outstanding, more than doubling for the quarter versus last year as global personalization megatrend continues. From a channel perspective, global DTC revenues, which include revenues from e commerce and company owned retail stores grew 93%. Both e commerce and retail had extraordinary performance And this was our 16th consecutive quarter of double digit e commerce growth. Digital, which combines e commerce that is reported in DTC and e tail that is reported in wholesale grew 75% to represent 32% of our 1st quarter sales compared to 30% last year. Digital remains our top priority and our digital present remains a competitive advantage relative to other footwear brands. Our wholesale channel, which includes brick and mortar, e tail and distributors grew 50% versus prior year, call, fueled by growth in all segments. Etail and our top 20 brick and mortar accounts experienced exceptional sell through. Distributors had the highest growth as they replenished inventories in preparation for a strong 2021. With our continued momentum, we remain focused on positioning our brand for long term sustainable growth. After careful consideration, we recently decided to prioritize wholesale partners who are aligned with our brand strategy and desired positioning in the marketplace. As such, we began terminating select North American wholesale relationships, a strategy many major brands have also used to maintain strong marketplace health. Looking forward, we'll remain focused on our strategically important accounts comprised of leading e tellers, sporting goods and family footwear and specialty footwear retailers. Our record revenues in the first quarter were achieved despite challenging global logistics that impacted many industries around the world. We're not immune to these challenges. With blockage of the Suez Canal and significant bottlenecks in West Coast ports leading to delays. Global are expected to remain congested and we're being proactive as possible. Our new EMEA DC in the Netherlands has opened And the transition is running smoothly. The expansion of our USDC is also proceeding as planned. These investments will support our competitive advantage in digital and our future growth. Finally, profitability was exceptional as we achieved record quarterly adjusted operating margins on record quarterly adjusted EPS. We're incredibly optimistic about the balance of 2021 and have substantially raised guidance for the year. Before I turn the call over to Anne, I want to express my gratitude to the entire Crocs organization for their dedication to our brand and to our communities. I'm proud of how they've executed as a team and the results that we have delivered for our employees, our customers and our shareholders. With that, Anne will now review our financial results in more detail. Thank you, Andrew, and good morning, everyone. I'll begin with a short recap of our Q1 results. For a reconciliation of the non GAAP amounts mentioned to their equivalent GAAP amounts, please refer to our press release. Our first quarter results were extraordinary. Fueled by all regions and channels, we delivered record quarterly revenues. Profitability was outstanding as we expanded gross margins, leveraged SG and A and increased earnings per share. First quarter revenues came in at $460,100,000 compared to $281,200,000 in the Q1 of 2020, gain, a 63.6% increase or 60.5% on a constant currency basis. We sold 25,900,000 pairs shoes, an increase of 51.5 percent over last year's Q1. Our average selling price during Q1 increased almost 8% to $17.64 with the increase attributable to increases in DTC revenue as well as fewer promotions and discounts. As we have shared previously, we look at our brand positioning market by market and in Q1 realigned pricing on certain products in select markets growth globally. Now let's review our results by region. As Andrew mentioned earlier, the Americas had another exceptional quarter with revenues at $276,400,000 up 87.1%. GTC growth of 131.3% was phenomenal. Strong traffic conversion in ATV as well as store closures last year contributed to triple digit growth in both company owned retail stores and e commerce. Wholesale growth was 59.4% as high sell through more than offset challenging 6. In Asia, Q1 revenues were $82,600,000 up 26.2 percent or 20.1% on a constant currency basis from last year's Q1. GTC increased 20.6%, while wholesale grew 28.6%. Digital revenues grew 60.1% and penetration increased significantly from 24.4% to 30.9%. We saw balanced growth across most of our key countries. India revenues were standout increasing triple digits. Distributors also returned to growth, albeit at a slower rate. EMEA revenues increased 48.8% or 41% on a constant currency basis to $101,100,000 with growing brand heat offsetting any global logistics disruptions. DTC revenues increased 29.2 percent with e commerce strength driven by higher traffic and ASPs, partially offset by retail declines due to COVID-nineteen closures. Wholesale revenues grew 52.7% fueled by strength in e tail and distributors. Our EMEA business overall continues to benefit from our focus on digital commerce, which represented 41.8 percent of EMEA revenue this quarter versus 38.2% last year. Our first quarter adjusted gross margins were 55.2%, up 7 20 basis points from last year's 48%. Guidance. Currency favorably impacted margins by approximately 100 basis points, while the majority of the improvement was driven by fewer promotions and discounts, channel mix and supply chain efficiencies. Our adjusted SG and A improved to 27.9% of revenues versus 38.7% in last year's Q1. The decrease in adjusted SG and A rate is a result of strong sales growth and operating leverage. We realized significant leverage even as we continue to invest to support our strategic initiatives. Our first quarter adjusted operating income increased nearly fivefold to $125,700,000 versus $26,400,000 last year with robust operating profit growth call in all regions. Adjusted operating margin rose from 9.4% to 27.3%, benefiting from gross margin expansion and SG and A leverage with an effective tax rate of 19.7 percent versus 40.9% last year. 1st quarter per share. Non GAAP adjusted diluted earnings per share increased to $1.49 compared to $0.22 a year ago. Our liquidity position and balance sheet remains strong. We completed the quarter with $255,900,000 of cash and cash equivalents, In addition to $499,700,000 of borrowing capacity on our revolver, in March to opportunistically take take advantage of historically low interest rates, we issued $350,000,000 in 4.25 senior unsecured notes due 2029 and used a portion of proceeds to repay the balance on our senior revolving credit facility. During Q1 and excluding the impact of the final ASR share delivery that we entered into in Q4, we repurchased 600,000 shares for $50,000,000 at an average price of 70 $6.95 per share. This month, the Board approved an increase to our repurchase authorization such that $1,000,000,000 remains available today for future repurchases. Inventory at March 31, 2021 was 196.5 $1,000,000 up from $195,800,000 in the Q1 last year. Inventory was lean throughout quarter. And we ended the quarter with higher in transit inventory due to global logistics challenges. Turning to the future, I would like to share our current outlook for the Q2 and full year 2021. For Q2, we expect revenue to grow approximately 60% to 70% and adjusted operating margin to improve to between approximately 21% 23%. Strong growth is expected in all regions as brand momentum continues and we anniversary some COVID related closures that were most prevalent in the Q2 of 2020. Barring a reversal in the pandemic recovery trend, we expect 2021 revenue to grow between 40% 50%. As revenue grows, We expect to be able to leverage SG and A leading to adjusted operating profit margins of approximately 22% to 24% for 2021. We now expect our underlying non GAAP tax rate to be approximately 20%, which is higher than previous guidance due to greater than expected profit in our U. S. Business. Our GAAP tax rate will also be approximately 20%, which is lower than previous guidance due to the release of additional valuation allowances following greater than expected profit in our international businesses. In summary, we delivered outstanding revenues and profitability that exceeded expectations while strengthening our balance sheet and investing in our future growth. Call. At this time, I'll turn the call back over to Andrew for his final thoughts. Thank you, Anne. Consumer demand for the Crocs brand remains exceptional. As you can see from our Q1 results and our increased guidance for 2021. We have a tremendous momentum in our business and we're Call. Call. Your first question comes from the line of Erinn Murphy from Piper Sandler. Your line is open. Please ask your question. Great. Thanks. Good morning and really incredible job to the whole team there. I guess my first question is on what you're seeing currently at wholesale between fell in and fell through. And I was pretty surprised by how lean inventory was, but you still have incredible Q2 guidance. So could you just talk a little bit about kind of the balance between the Right now. And then maybe Andrew, can you share a bit more about kind of the timing and maybe of the strategic pullbacks at wholesale? What type of account should we expect that you're kind of pulling back from and how is that kind of contemplated in the full year guidance? Great. A lot of questions there. So, no, pleasure, pleasure. So, from a wholesale perspective, look, we are seeing very, very strong sell outs, right? So we continue to see strong sell outs. We've seen that strong whole quarter. Frankly, it was also strong last quarter. In terms of sell in, that is also strong. As you can see in our kind of revenue growth from a wholesale perspective, 50 2% growth is very, very strong, particularly strong in North America. That is affected by shipping delays. There are a great deal of logistics issues around the world, as I'm sure you're well aware of. But net net, we're still able to We achieved that growth and we're able to keep our wholesale partners certainly in stock, probably not in stock to the degree they would like Quite frankly. From a timing of an overall inventory balance, yes, the inventory balance is Relatively flat from last year, but don't forget that was an elevated position. So if you compare it to end of Q1 2019, I think think that will be about a 50% growth in inventory, right? So as you look at inventory relative to future guidance, we still believe we're in a Good position to meet the guidance that we have provided. In terms of The actions and the work that we've done with wholesale partners, that's really in the broader context of our market price management. So if you think about earlier this year, we instituted MAP pricing on select styles here in the U. S. And we're really focused on making sure that we have a healthy long term marketplace, particularly for our core classic product, which is obviously the backbone of our brand. And so we made the decision to pull back from certain wholesale partners. I would say these are generally partners who didn't feel like they were consistent with our future strategy. And I think that was it's really in the context of our broader marketplace strategy that we're working through. So and we think that will put us in a great place for the future. Great. Thank you. And this is tied by the 50% inventory for its Q2 balance versus Q2 2019. Got it. Thank you. No, I appreciate that. And then just my second kind of question is around pricing increases. Call. We picked up at the end of March. You were taking pricing here in North America and the core classic. It feels like the messaging was a little bit different, Andrew, I think earlier around ICR, it seemed like you guys were kind of tapped out at where pricing could be here in North America. So I guess we're a little surprised to see that. So curious what You're seeing kind of post the pricing actions? And then what percent of your higher guidance today contemplates this pricing increase? Thank you. Yes. So let me let Anne address what percent of the proportion of our guidance that is impacted by the pricing increase. But before we do that, yes, call? So in terms of the pricing impact, yes, we did take some pricing increases this quarter, Classic. And I would say derivative and related products. We have a lot of products that ladder together, so we moved to actually quite a few products. That was really based on looking at The market by market around the world, it was here in the U. S. I would also highlight it was in other markets around the world as well. The impact of those price changes will take anywhere between 6 to 9 months to flow through to our overall financials. As we look at pricing, we're really looking to make sure that we, number 1, give an incredible value to our consumers. That's the first thing that we're focused on. The second thing that we're appropriately matching supply and demand. And we really felt like we had an opportunity to take some pricing action. We think guidance. So we feel like it's been well received and but we will continue to monitor as time goes on. Yes. And then just on the guidance piece. So I think obviously the increasing guidance does reflect the pricing increases that we took, but it also just reflects The increasing brand momentum because our brand just continues to accelerate. I think we've really seen the over performance in Q1. We expect a strong Q2 And then, we have more visibility into the back half. And so that really is the reason for the increasing guidance. I think that's just we've gained more confidence expense now that markets are reopening globally and the health of the U. S. Consumers obviously continuing to improve, which seems to have been supported by government stimulus. So I think it's a mix of those pieces. In addition to that, we also have evidence that the brand trajectory in EMEA, I think, was up call. 50% in the quarter is following what we've seen in the U. S. So it is a mix of price, but it is also volume. So it's a mix Both of those from a guidance increase perspective on the revenue side. Thank you both. And I'll let someone else hop in. Thanks so much. Thanks, Alex. Thank you. Your next question comes from the line of Jay Sole from UBS. Your line is open. Please ask your question. Great. Thank you so much. I want to ask about sandals. I think I heard you mentioned that sandals grew 17% in the quarter. Can you talk about how you viewed that result? Were you pleased with that? And what signs did you see that give you confidence that you see Long term growth potential in sandals to help you capture bigger market share in that $30,000,000,000 global category? Yes. We saw a lot of signs, Jay, that were very encouraging. So I'd say we were very pleased with the 17% growth. It is obviously behind our slot growth. And as we said earlier in the year, we do expect sandals to grow less quickly than clogs this year. But over the long term, we expect sandals to be a higher growth category than our underlying blood business. The signs that we saw that were particularly encouraging, I would say, number 1, personalization. So the dividable or the personalizable terms that we released last year and this year continue to do extremely well. So Classic Slime we released last year, That is really strengthening this year. The 2 strap classic sandals that we released this year has had a very strong kind of initial introduction. So Customization on sandals is definitely working really well with our core consumer and so we're very pleased by that. In addition to that, I would say the reintroduction of some major franchises that we launched last year Into the sort of the core of the pandemic. So Brooklyn, Tulum and Monterrey as we reintroduced in this year a few new colors, but Frankly, a lot of the same products are also doing really well. So you look at the combination of personalization, you look at our other core platforms, we feel really Mr. Carl Sandoz. So and as we look to the future, you mentioned it in your question, this is a huge global market, right, dollars 30,000,000,000 global addressable market for us from a standard perspective. So we're very confident about our future in this category. Great. Thank you, Andrew. That was really helpful. If I could ask you one more, the brand relevance just continues to increase. Can you just talk about what some of the key drivers were as some of the key actions that you took In the quarter that continues to drive the incredible momentum behind the brand right now? Yes. I think it's in a nutshell, I would say it's probably three It's product marketing and marketplace management, right? So, number 1, I think we continue to deliver to the market Fresh and innovative product, right. And fresh and innovative for us can be as simple as the right color and the right graphics. So we have some of our new colors In Classic, definitely trend right, definitely in sync with where the consumer is performing well. Graphics performing well. So That's an innovative product. And as Ori talked a little bit about, sandals. I would say marketing, the integrated marketing program, our use of celebrities, our use of collaborations, our use of social media, amplifying that around the world, both here in this country, but also, frankly, in China and all parts of the world has been really important. And then increasingly our marketplace management efforts here in the United States and in our key overseas markets Where we're being very thoughtful about where our product shows up, how it's priced, what supply we put into the market so that we maintain A really profitable business for us, but frankly also a very profitable business for our wholesale and distributor partners as well. Got it. Thank you so much. Thank you. Your next question comes from the line of Jonathan Knoeps from the Crocs. Your line is open. Please ask your question. Conference. Thanks, Dick. It's John Komp from Baird. Just if I could start one follow-up on the pricing question. Call. I know you mentioned labor and some wage increases. There's been maybe some questions about resin input costs too. So is there any sort of inflationary offset to the pricing you've taken? And any thoughts on Updated targets for gross margin for the year? Yes. So, good question. We are seeing a little bit of inflation As we talked about, I think the biggest pressure right now is really on freight, both on the inbound and outbound side. We also anticipate some labor cost pressures. So In key manufacturing origins, we haven't seen that yet, but we do anticipate that coming. And also in our GCs, as Andrew touched in his prepared remarks, we did actually Rates in salaries and wages there. So, our input costs are a small percentage of our overall product costs, But we are seeing higher commodity costs due to supply and demand imbalances. That is also a little bit of an offset. And I will say we've incorporated all of that into the guidance perspective and our gross margins we do expect to be up year over year. And you can see that kind of coming through as you saw in Q1. So we do expect to have good gross margins for the year. And just one more clarification. I don't know if Asia Pacific was mentioned for pricing at all. If that market recovers, would that be something you might look at beyond 2021 or any thoughts there On the geographic reach of the actions you've taken so far? Yes. So we have taken some price guidance. Got some in Asia already, John, in some of our core markets. So some of that was done this year already. But I do think in the future there is potential for prices. The brand continues to strengthen in key Asian markets. Okay, excellent. And then just one broader question for me. I know at some point we'll be having a broader discussion during an Investor Day. But when you think of This year's performance and the new guidance to get back to low to mid-twenty percent adjusted operating margin, how should we think about the broader context of this performance? And Is that is there anything that you see this year setting sort of a higher unattainable bar going forward? Or do you There's good opportunity to maintain and grow margin looking ahead? Yes. So obviously, we haven't given long term guidance. I think we're incredibly about what we're seeing in the brand. As we've kind of talked about the pieces, we think gross margins are largely sustainable. We've done a lot of work around that. And then from an SG and A perspective, we've always said, we can we've been able to leverage the increase in volume because our business model created that way. So, we think those pieces won't change, but we will obviously look forward to Putting out some longer term guidance in the back half of this year during an Investor Day. Understood. Look forward to that. Thank you. Call. Thanks, John. Your next question comes from the line of Sam Poser from Williams Trading. Your line is open. Please ask your question. Good morning. Thanks for taking my questions. Parts of pretty much everything has been answered, but I'll try to. Number 1, The closures, you mentioned that those retailers that you've decided to shut down, did not fit your long term plans The way the brand was being presented. Can you tell us what that expectation is And what that is that you want from these partners? Do they all have to be large retailers now? Or is it Digital is it brand presentation, digital abilities and so on and so forth within those retailers that you decided to close? Yes. I mean, I think so I think the way I probably ask that, Damian, is that, look, there are certain categories of resellers that we have, certainly strong Call. I think we've been really clear about that, Alvaro. You can get some feedback there. So I really clarified that in a long period of time. So retail, sporting goods, family footwear and large specialty chains. We put fundamentally large retailers are going to win in the long term and those are formats that we think makes sense for the consumer over the long term. In addition to that, we're looking to make sure that we're well placed in strategically important smaller retailers, whether they Tier 0 influential accounts or regional accounts that have strong penetration in their local markets. We are less It's in undifferentiated, small players that don't have particularly good service levels or We're taking advantage of some, I would say, digital distribution that We don't think it's accretive to the brands. So it's really kind of putting resources, putting our time and behind the retailers, which we think are going to be strategically important in the future. Thanks. And then how I mean, given the port the supply chain delays and so call. Is any and Ann, you mentioned some of this some of the cost increase would go to help call. Your some of those logistics, does some of this price increase will go to possibly air freighting goods to play catch up so you can service some of these businesses better as you await product to come in that's on the water right now? Yes. Yes. So that's absolutely right. I mean, I think we're very, I would say, Focused on not using airfreight however possible, obviously, especially given airfreight costs are even more elevated than what we've seen in the past. So we will selectively air freight goods in order to get them in quicker, particularly where we're really lean. So we have been doing that. That's incorporated in our guidance. We still expect gross margins? Yes. So yes, part of the break increases will offset some of the air freight that we will need to use. And then lastly, China, you talked about you expected China to become really turn the corner for next year. Is there anything happening there? Any changes there? Any improvements you're seeing there that are better than expected that might make some of that happen this year? I would say from a China perspective, Sam, we're definitely on track. Look, we feel really good about the plan we put in place. We track into that plan, all the KPIs by channel, and make a lot of sense. And we're right where it would be. So I'd say it's broadly on track. I would say a few things. We were really pleased with Justin Bieber launch in I had that one exceptionally well. He resonated and the activations that we did resonated probably had one of the Fastest sellouts as we looked at our sellout time across the globe. We're certainly getting some traction in social media in China with some of the things that we're doing and I'm trying to be innovative. I would say our partner transitions are going well. The new concept stores that we've opened are clearly resonating customization is at the forefront of those stores. So I think we're definitely on track. I wouldn't say that we're going to see faster acceleration this year. Thank you very much and continued success. Thanks, guys. Your next question comes from the line of Susan Anderson from B. Riley. Your line is open. Please ask your question. Hi, good morning. Nice job on the quarter. Thanks I'm curious in Europe, if you've seen the retail part of things or the Wholesale stores start to sequentially improve into April as it sounds like things are starting to open up there. And then also if you could talk about maybe which markets are still step down for you in Europe? Sure. Yes. We don't comment on inter month movements kind of during the quarter. But I will say From a Europe perspective, one of the best things about our EMEA business is it's actually very high from a digital penetration standpoint. So even though most of our stores in Western Europe were shut down in Q1, we still saw a really strong trajectory both on our scale platform and on our own e commerce, so driving that 50% growth as well as distributors. In Europe, we've seen pretty market improvement in some of our distributor markets in EMEA. And so obviously, we're seeing things kind of vary from an opening up perspective there. But again, the underlying we don't have that many retail scores in Europe. So the underlying trajectory that's driving EMEA is really the digital side of things. Great. That's helpful. And then if I could just add a follow-up on the collaboration front. I'm curious if there's any, I guess, quantitative details count. New customers coming in as you do these collaborations and I guess just drawing buzz to the brand and driving excitement with existing customers. And then also on the sandal front, I'm curious if there's any plans to do any collaborations with the sandal to kind of drive excitement around those products? Yes. Let me start with the last piece because that's easier. Yes, absolutely. We will see a number of collaborations in streams? In 2021 that are focused on the SaaS. So yes, I think that's definitely coming and I think really important. And I would also say some of our super high profile collaborators will be on the saddle for the rest of the year. In terms of new customers and parts, etcetera, from the collaborations, it's really a combination. And I would say each one is unique, right? So And they're actually designed that way, right? Some are designed to be have an opportunity to attract new customers, acquire new customers And the mechanism of releasing these collaborations does allow you to capture the customer information for those new customers and be able to cost. And some of them are designed to be more, I would say, controversial, controversial is not the right word, but more kind of interesting and cost. So it's really a tapestry that we try to put together. And so it really works from both perspectives. I think one other thing that You would note in 2021, we'll do more international collaborations. We've already released a number internationally and we'll Call. Thanks so much. Good luck the rest of the year. Thank you. Your next question comes from the line of Mitch Kummetz from Fibitall Research Group. Your line is open. Please ask your question. Yes. Thanks for taking my questions. And you mentioned that part of the uptick in guidance is just a better outlook for the back half. And just want to kind of run some numbers back of the envelope. It looks like for the back half, you're looking for about 30% -ish sales growth, which is Not as strong as the first half, but on a 2 year basis, it looks like it's 70% plus, which is actually stronger than the first half. So I'm hoping you could just tell us what gives you the confidence of that is because the brand is becoming more of a back to school brand, because expect Big things for line clogs in the 4th quarter. And if there's anything on the visibility side that you can sort of support Just what you're seeing in the fall order book, just anything there would be helpful. Yes. I mean, again, I think, call? Mitch, we're really seeing that momentum continuing to accelerate both in the U. S. And overseas, which is really exciting for us. I think our distributor business And Asia while still down from a tier basis starting to increase again, our EMEA distributor business is positive. So we're seeing all those really good signs. Obviously, we had huge direct to consumer outperformance in Q1, which is our smallest direct to consumer quarter. Call. That really gives us confidence. And I think we do have more back half visibility as well as just seeing how the U. S. Consumer is funding to stimulus and other things and with the reopening. I think it's all of those things lead us to believe That, that trajectory only continues to accelerate. So we expect us to confidence to raise our guidance. We're really pleased with that. Yes. From a product perspective next week. Yes. We're definitely optimistic about the LifeLock, because it is an important product brand. And so that does help support our business in the back half. And then finally, the pricing increases will actually flow through the revenue as well as margin. So those are also incorporated into the updated guide. Okay. And then is there any way to isolate the impact of stimulus on the quarter? And when you think about It was something that occurred early, I guess, a little bit in January, but then more so in March and that's continued into April. Do you think Stimulus should be equally beneficial in the Q2. Is it Q1 or is it weighted more towards 1 or the other do you think? I'm not sure about weeded more towards the first through the second quarter, but we definitely saw an impact. I mean, I think it was pretty clear and from what I've been reading, scores like others have as well. So certainly, the consumers seem quite buoyant right now in the U. S. And we definitely saw an impact in similar. Okay. And And then lastly, Andrew, on Sandals, you mentioned, it sounds like the slide, the personalization side of Sandals is really what drove The quarter, but then you also mentioned the reintroduction of some franchises like Tulum and Brooklyn also did well. I'm curious if you maybe speak to the trajectory of the sell through that you're seeing there? I would guess that January February probably weren't great months for those kinds of franchises. I wouldn't think that maybe the sell in on the order book was that great there. But now we're getting into the warmer months and things like bell bottom Denim is trending again and that's good for wedges. Anything that you're seeing there kind of on the trajectory side that would speak to your confidence in Those were fashion franchises as we get further into the sandal season? All right. So there's quite a lot there. Call? What I'd say probably look, saddle deliveries and the quantum saddle sales absolutely increases as you go from the back end of the Q1 into 2nd quarter, right? That's just kind of the natural seasonal cycle. So we're certainly seeing more deliveries and we're certainly seeing the business release. I would say the personal life that was frankly did well out of the gate. So I don't think that and I think one thing that we are seeing in some components The final business, particularly the slide and potentially the T strap, it's pretty seasonless. That consumer that's wearing it is wearing With and without soft depending on the season. So we're seeing that be more seasonal in the future. And we think in the future, we think the overall sandal business Probably is a little less seasonal than it is. I would say and one thing in addition I'd say In the quarter, I think the new introductions are Personalized and the reintroductions were both strong. They were both components in terms of driver of the business. It wasn't just strong based on the personal items. Both did well. Okay. All right. Thanks. Good luck. Thank you. Your next question comes from the line of Laura Champagne from Loop. Your line is open. Please ask question. Thanks for taking my question. It's really about operating expense leverage and especially How are you planning your sales and marketing expense this year to support that very strong growth that you expect? Yes, it's a great question. So we're obviously pleased to leverage SG and A and we talked about that on the last call that we would leverage SG and A. Q1 was probably a little bit lower from an SG and A standpoint just because our marketing usually kicks off our marketing campaigns really start off in Q2. So we do expect that to increase as well as we've increased some wages for our frontline employees. And we have we'll continue to invest in our key initiatives, right, that we've laid out. So that's sandals, that's China, that's digital, and then relevant products and marketing. And We will see those costs start to layer in throughout the year because the big focus is obviously investing to support our growth for next year as well. Got it. So is it possible to give sort of a range of sales and marketing expense increase year on year? Or to talk about how it layers in seasonally? I definitely think it all again increase in Q2. So if you kind of Last year was a weird year, so I would kind of throw that one out and go back and look at 2019 and kind of think about how SG and A kind of looks from a quarterly spread. And I think that will help Because we definitely expect it to increase quarter over quarter, and we do expect to invest in marketing. So we will call? We continue to see that increase. And we can go back and look at our historical marketing costs, something right around just under 7% of SG and A. Got it. Thank you. Or revenue, sorry, yes. Your next question consumption on the line of Sohit Singh Anand from Stifel. Your line is open. Please ask your question. Hi, it's Jim Duffy from Stifel. Good morning. Great execution, no doubt a lot of hard work behind this. I want to take a step back with this in mind. I'm hoping you guys can talk more about the infrastructure to support the growth. You've outlined Sightline to took $2,000,000,000 business this year. That's a big jump in just 2 years from about $740,000,000 Can you talk about scaling manufacturing capacity to quarter. Have you taken on any new partners? And I know you have the new distribution centers. Are there any gaps in the infrastructure that are particular focus As you look to support that higher revenue run rate. And then I'm curious, as you exit the year, are you still Playing catch up on infrastructure, you feel the infrastructure is in place to support further growth? Yeah. Good question. Thanks, Jim. So we've really been investing in our infrastructure now for about twothree years, right? You saw us make stake? Substantive investments last year. We're making substantive investments this year. Those capital investments for us are really going into our DC. So as a reminder, We opened new DC in Dayton, Ohio 2 years ago. We expanded that last year. We'll further expand that Next year, right. We have opened new DC in the Netherlands that is now open. We're transitioning our operations from a old one to a new one through the remainder of the year and that is a substantial increase in terms of capacity. So we also transitioned last year to a new DC which is a 3PL in Japan. So for us, we may be making, I would say, some pretty significant investments expanding capacity and also expanding efficiency and effectiveness with the use of automation. So I think we feel good about that. But guidance. With the use of automation. So I think we feel good about that. But frankly, as we continue to grow at least rates, we'll continue to need to make those kind of investments. Call. But we have, I think, a good plan for that. From a sourcing and manufacturing perspective, we have some phenomenal partners. We have major partner groups in Asia that have very significant resources. They have opened new facilities that plan to existing facilities and we'll continue to do that in the future. And we're in conversations also with a couple of significant new partners as well. So we feel really confident in the partner base that we have and our ability to work with new partners in potential in new regions for manufacturing. So we feel like we're in a good place. As you know, we do try to run our inventories lead, right? No, we think managing working capital, getting high working capital efficiency and keeping inventories lean such as the marketplace is not flooded with goods It's actually a really important component of brand management. And if I could just add on the SG and A side, Jim, I think when you think about how we're supporting the growth, We're definitely adding in one of the investments. We'll be adding headcount across our key areas and our key initiatives in order to support this growth guidance. That will obviously is included in our guidance for our operating margins this year. Great. Very helpful answer. Building on that, any challenges with staffing to support any of this additional capacity or are you finding ready availability of labor? I would say no, not really. We are hiring quite a few positions because obviously you need to Add positions to and I would say that's across a broad spectrum of functions. But what we are finding is our brand not only is in demand from a consumer perspective, it's very appealing to a place. They're excited by the trajectory of the business. They're excited by a lot of the things that we're doing from a brand management perspective. And I think generally, we're getting great feedback from our employees. This is a great place to work. So we're attracting a lot Really phenomenal employee. Yes. And we've been recognized, I think, Andrew said in his prepared remarks by Forbes for inclusivity as an employer and then I think we are also recognized as one of the best midsized employers. So that's also helpful from an employment branding perspective. Outstanding. Keep up the good work guys. Thank you. Thank you. Your next question comes from the line of Sam Poser from Williams Trading. Your line is open. Please ask your question. Just a quick two follow ups. Number 1, How much bigger on a percent basis do you expect the marketing spend to be in Q23 I guess versus Q1 and versus 2019 as a percentage. So I would take the way to think about marketing is take it as a percentage of our revenue. So if you take our revenue guidance And used our marketing percentage historically, it's going to be about right. We might expand that a little bit if things are going well. But that's kind of how I would think about that, Sam. Can you just remind us what that is? Yes, it's almost 7%. So we run around 6% to 8% of revenue from a marketing standpoint. Thanks. And then lastly, the gold shoe we saw the other night, was that something you guys made or something His stylist did. And will we see that as part of the line? Unclear what call. It's something that we made in collaboration with the status. All right. Thanks very much. Again, continued success. Call. Thanks, Jeff. There are no further questions at this time. You may continue. Thank you very much. I just want to thank everybody Call for joining our call today and their continued interest in Crocs. So thank you very much. Have a great day. This concludes today's conference call. Thank you for participating. You may now disconnect.